Student fees at Melbourne University will need to rise by up to 61 per cent in some courses to manage federal budget cuts, according to Vice-Chancellor Glyn Davis.

In an email sent to staff members on Friday May 30, Professor Davis estimated fees across the university would soar, as he outlined the university's plan to work through the budget.

“Initial analysis shows the gap [caused by reduced public funding] is momentous indeed – fees would need to rise by 45 per cent to make up lost funding in social science disciplines, by 54 per cent in Science, and by 61 per cent in Engineering,” the email said.

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“The budget has significantly changed the allocation of public money across disciplines. There are some winners – mathematics and humanities – and many losers.”

Professor Davis is the first vice-chancellor to indicate potential fee increases if course fees were to be uncapped. He said students would be offered "nothing new" for the increased debt.

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He told staff that they should "urge the Government to moderate the interest rate imposed on student debt and reconsider deep cuts caused by the change in funding clusters".

"Everyone on campus, student and staff member alike, understands we are now entering an unprecedented era in higher education. There are challenging issues involved in setting fees that cover the real costs of university education, yet minimise debt levels for the next generation," he said.

As one of Australia's elite universities, with high demand for many of its subjects, Melbourne University is well-placed to increase its fees.

However, in an interview with Fairfax Media last week, the Vice-Chancellor said the university would not increase fees to charge the maximum possible.

“An economist would tell you that competition should hold fees down,” he said. “I think there's some truth in that.”

He said if students have more choice in where to go for tertiary study, universities would keep their prices low enough to attract applications.

Professor Davis, one of the most influential figures in higher education, said he was “concerned” about parts of the federal budget and found parts of it “distressing”, despite his general support for tertiary fee deregulation.

“The only reason I am for fee deregulation is because both sides of politics have showed us they aren't prepared to do enough public funding,” he said.

“Let me be clear about that: I'm not in favour of fee deregulation in its own right […] I'd prefer something else, but I and anyone else has to live with the world as it is.”

But he also said he supports fee deregulation because “it never seemed to me sensible to have government setting fees. Why is government the right body to decide exactly what the fees are?”

“Even more distressing is the shift to the bond rate,” he said.

Student loans would now have higher interest rates, in line with the 10-year government bond rate. The bond rate is a long-term interest rate determined by the government.

“It's a much higher rate of interest. It starts earlier and it will compound over time, which means that students will be paying back higher fees for longer,” Professor Davis said.

“And that's very disappointing.”

The Abbott government’s changes to higher education will allow universities to set their own tuition fees from 2016.

Prime Minister Tony Abbott this month said he could not guarantee university courses would not double: ‘There are lots of things that I can’t guarantee, because we live in an uncertain world, but I can guarantee that no one will have to pay a cent up front.’’

Asked if university fees could triple or how high they could potentially rise, parliamentary secretary for education, Senator Scott Ryan said: ‘‘That’s what deregulation’s about; it’s a matter for the universities.’’

Speaking on ABC's Radio National breakfast program on May 15, Education Minister Christopher Pyne said even if degrees jumped above $120,000 it would not deter young people from enrolling in a course.

‘‘Of course, every single dollar that a student will be asked to pay in fees can be borrowed from the taxpayer and not paid back until a student earns over $50,000 a year. So, no student can be deterred on the basis of a cost of their degree.’’

On May 26, Mr Pyne challenged universities not to increase fees for current school leavers, saying it is their call whether to include them in a deregulated fee system from 2016.

Following a wave of criticism, Mr Pyne called on vice-chancellors to embrace the freedom he is offering them through a deregulated fee system and wave through students who enrol next year under the existing capped fee system.

He compared some university vice-chancellors opposed to his reforms to birds who have been released from a cage but are too afraid to fly.

In an interview with Fairfax Media, Mr Pyne outlined how he was willing to negotiate on his higher education reforms, including the HECS-HELP student interest rates and the salary threshold when when debt repayments kick in.

However, he put the onus on universities to end the confusion over students enrolling over the next 18 months.

"Universities could easily say, as part of their policies, that if you enrol for a degree under one system you will stay in that system. That is entirely a matter for them," Mr Pyne said.

"The university sector has been asking for freedom for decades. Now it is time for them to decide whether they really want freedom or whether they just said they did."